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Most people are familiar with the concept of a last will and testament, a document that establishes what should happen with your estate and even your living dependents upon your death.
Sometimes during the estate planning process, you might find that the beneficiaries of your estate need an additional layer of support or protection with regard to their inheritance. When the beneficiary of your estate might need help managing their inheritance or might be too young to manage it, you may decide the best course of action is to establish a probate trust as part of your last will and testament, also known as a testamentary trust. This is a kind of trust that becomes effective only at the completion of the probate process, which happens after your passing.
What Is a Probate Trust?
Wills undergo probate, which is a process where a person called the executor of a will oversees the settling of the estate. This includes paying debts and taxes as well as ensuring the distribution of assets. Because a probate trust is part of a will, the probate court’s involvement is generally to ensure that the trust is authentic and allow the trust to be created. Once the trust is created, its terms can be administered.
The probate court may also oversee the life of the trust according to the stipulations in your will. In this case, the trustee—the person responsible for administering and managing the trust for your beneficiaries—may have to report to the probate court periodically and submit documentation of their effective management of the trust.
Why Would You Use a Probate Trust?
There are several key advantages to using a probate trust in place of a last will and testament alone:
- Provide for underage beneficiaries. If you have beneficiaries who may be underage at the time of your passing, such as children and grandchildren, a probate trust can be created to ensure that their inheritance is responsibly managed until they are of age.
- Manage the timeline of inheritance. Additionally, if you want to make sure certain requirements have been met before your beneficiaries receive their inheritance, a probate trust can do so. You might stipulate that the trust not release funds to your beneficiary until they turn 25 or upon college graduation. This can also be a good option if you have beneficiaries whose money management skills or current personal situations concern you but you do not want to disinherit them.
- Plan for special needs beneficiaries. Planning for the future care and well-being of a beneficiary with special needs can be difficult. You want to ensure that your loved one reaps the full benefit of your estate without the risk of losing the inheritance or being taken advantage of. A probate trust can also help avoid disqualifying your beneficiaries who rely on government assistance programs.
- Reduce the tax burden. While Massachusetts does not have a state inheritance tax, depending on their state of residence, your beneficiaries may be subject to inheritance tax in addition to the estate tax paid out during probate. An estate planning and probate lawyer can help you determine if a probate trust will ensure that more of your inheritance goes directly to your beneficiaries.
- Make changes if needed. Because a probate trust does not technically exist until after it goes through probate, which happens after you die, that means you can make changes to the trust. After probate the trust will become irrevocable, but during your lifetime you can make changes to the terms and even the beneficiaries.
- Fund with life insurance. A probate trust can be funded after you pass away using your life insurance policy. This is especially important when you have a substantial policy and want to ensure that your beneficiaries are well positioned to have access to the proceeds in a way that will benefit them in the long term.
How Much Does It Cost to Set Up a Probate Trust?
Because probate, or testamentary, trusts are fairly simple estate planning and probate processes, they are generally fairly inexpensive to establish. You should keep in mind, however, that the probate process and administration will cost over the lifetime of the trust, so it is important to plan ahead for administration fees and consider what level and frequency of oversight is necessary.
What’s the Difference Between a Probate Trust and a Living Trust?
A trust, simply put, is a legal agreement that allows a third party, called a trustee, to manage assets passed on to a beneficiary. There are a number of different types of trusts with different structures, advantages and limitations.
The primary difference between a probate trust and a living trust is that a living trust is created while the settlor, or trust creator, is still alive—hence the name—and does not undergo the probate process like a probate trust does.
The best kind of estate planning is unique to each individual situation, and making the determination about what kind of trust is best for your family is ideally done with the support of an estate planning and probate lawyer.
Kimberly Butler Rainen Can Help You Secure Your Family’s Future
It’s difficult enough to think about your loved ones going on without you when you pass. You shouldn’t have to worry about their financial security after your death.
At The Law Offices of Kimberly Butler Rainen, we can not only help you create trusts and wills, but also work with you to create a unique, holistic estate plan that ensures heirs and beneficiaries get the most out of your assets. That way, you can rest easy knowing that your loved ones will be provided for long after your will is executed.
If you are ready to start planning for your family’s future today, we invite you to contact us to speak with an estate planning and probate lawyer now for a consultation. We’ll help you understand your options and start building a plan that works for you.